Cyprus bails out second-largest lender
2 July 2012
, Athens (MarketWatch)http://www.marketwatch.com/story/cyprus-bails-out-second-largest-lender-2012-07-02The Cypriot government acquired shares worth €1.79 billion ($2.27 billion) in Cyprus Popular Bank PCL (CPB.CP), the country's finance ministry said Monday, in order to help the island's second-largest lender meet minimum capital levels depleted by its exposure to Greece's debt problems
The finance ministry bought the shares in the Cypriot lender, following parliament's approval May 17 of a plan to underwrite Popular's attempt to raise €1.8 billion in equity
, after the bank wrote down some €2 billion in losses
from Greece's debt restructuring earlier this year.
"The capital strengthening plan of Bank of Cyprus resulted in an increase of share capital by €592 million
," the finance ministry said in a statement.
The lender was obliged to meet a minimum Core Tier 1 capital ratio of 9% by September, a deadline set by the European Banking Authority.
Cyprus, which took over the rotating European Union presidency on July 1, formally requested financial aid from its European peers last week and became the fifth euro-zone member to seek an international bailout.
A delegation of European and international creditors is expected to arrive on Tuesday in order to start discussions on a European-led bailout for the country, the finance ministry said in a separate statement.
According to the announcement, the delegation, which is expected to stay in Cyprus until Friday, will meet Cypriot officials and address issues relating to the financial sector and macroeconomic issues, including financial economics.
The ultimate size of any European bailout will depend on the upcoming talks between Nicosia and officials with the European Commission, the European Central Bank and the International Monetary Fund--known as the troika--but Cypriot officials say the government will need up to €10 billion of assistance
A large part of that package will be devoted to recapitalizing Cyprus' giant banking sector, whose assets and liabilities are over seven times the country's annual economic output.
The island is closely linked to Greece's debt problems through the exposure of its banks.
The three largest Cypriot lenders, Bank of Cyprus
(BOCY.CP), Cyprus Popular Bank PCL
and Hellenic Bank
(HB.CP), are heavily dependent on the Greek market, in which their retail operations boosted profit the past few years.